Navigant Research Blog

A Microsoft/OSIsoft survey released in early 2012 ranked renewables integration (43%) as the second most important reason for implementing a smart grid, behind smart metering (71%).

A forthcoming report for Pike Research will show how microgrids are leading the world today in terms of revenues derived from smart grid renewables integration, but recent market activity has intensified in regards to the concept of a Virtual Power Plant, a smart grid optimization platform that still faces skepticism.

The company that first introduced the term to the world, Siemens, is taking the concept of a VPP to the next level in terms of actual market commercialization.

Given that Germany is phasing out nuclear power, the 23 megawatt (MW) “Regenerative Combined Power Plant” (RCPP) experiment carried enormous implications. A total of 36 wind, solar, biogas, CHP, and hydropower generators were operated as if a single power plant was supplying 24/7 power to the equivalent of 12,000 households. Project leader Dr. Kurt Rohrig of Kassel University was awarded the German Climate Protection Prize 2009 for his work on this cutting-edge renewable supply management experiment. While it generated the equivalent of only 1/10,000 of Germany’s total supply, this successful R&D venture has convinced academics and a partnership featuring Enercon GmbH (whose wind turbine provides a unique suite of grid services), SolarWorld AG (a major manufacturer), and Schmack Biogas AG that the entire country of Germany could be completely powered with a diverse blend of complementary renewable energy resources.

Doubters have pointed out that the RCPP project failed to account for grid congestion challenges that might frustrate this sort of VPP under real market conditions. That’s why Siemens’ recent announcement to work with German utility RWE Deutschland AG (RWE) to fully commercialize this VPP model is so important.

Siemens’ VPP commercial offering is based on is its Decentralized Energy Management System (DEMS), which is designed to enhance both wholesale and distributed generation operations according to pre-defined economic, environmental, or energy-related priorities. A variety of combinations of supply- and demand-side resources can be optimized, whether the generator is a large wind farm or an on-site biogas unit. DEMS was first deployed at a small Austrian paper and pulp mill in 2003.

Siemens was one of the first private companies to explore the concept of VPPs, playing a key role in providing the management system for another pioneering effort in Germany. Since October 2008, this project has aggregated the capacity of nine different hydroelectric plants ranging in size from 150 kW up to 1.1 MW, with a total VPP capacity of 8.6 MW. The VPP framework opened up new power marketing channels for these facilities that would not have been viable if these distributed energy resources (DER) were still operating as standalone systems.

Operated by RWE from a centralized control room based in Dortmund, the Siemens/RWE project will grow to 20 MW this year by adding combined heat & power (CHP) units and emergency back-up power systems to the existing hydro portfolio. It will be expanded to 200 MW by 2015 by further integrating biomass, biogas and wind resources into the network, making this an official commercial offering in Germany, where recent market changes have created fertile ground for VPPs.

Since February of this year, power from this VPP has been sold at the Energy Exchange (EEX) in Leipzig, Germany under new amendment terms of the Renewable Energy Sources Act. This is the first direct marketing of renewable power under this new program. Given the proposed reductions in Feed-In Tariff (FIT) rates, the EEX is being viewed as a key new innovation to help optimize growing renewable energy resources in Germany.

For such a small country, Denmark certainly knows how to do sustainable energy in a big way. Late last month the Danish Parliament passed the most ambitious renewable energy goal in the world. By 2050, the country’s entire economy will be powered by renewable energy. Given Denmark’s reliance on variable wind power, in order to accomplish this goal the smart grid will need to play an increasing role in aggregating and optimizing the country’s energy resources.

Already, Denmark obtains more than 25% of its electricity from wind power. Under the new commitment from the Danish government, 35% of the country’s energy will come from renewable sources by 2020, with roughly half of that coming from wind power. It’s important to note that this 100% renewable goal applies to Denmark’s entire energy supply, not just electricity, and therefore also includes heating, all industrial activity, and transportation.

The country will, by necessity, lead the way with smart grid aggregation and optimization networks such as microgrids and virtual power plants (VPPs). In order to accommodate larger penetrations of renewable energy, the Transmission System Operator (TSO) Energenit.dk is redesigning its market dispatch rules accordingly. Under the current system, Energenit.dk only accepts power bids from power producers of at least 10 megawatts (MW) in size, and load forecasts are updated every 15 minutes. Under the proposed new real-time market being rolled out, there will be no size limit on scheduled resources, and prices will be updated every five minutes, opening up the door to distributed energy resources – including demand response — that can respond quickly to price signals.

The country has laid the foundation for this new aggressive renewable energy policy by moving forward with trend-setting smart grid renewables integration projects rivaled only by Germany in terms of scale and ambition (my next blog post will cover Siemens and VPPs.) In 2011, Energinet.dk – with significant help from Spirae, an innovative software/hardware provider based in Colorado – completed a cutting edge R&D project with major ramifications for renewables integration: a 65MW VPP, commonly referred to as the “Cell Controller Project.” It consists of distributed wind and CHP units owned by farmers and village heating districts, and will be operated by Energinet.dk.

This successful R&D experiment set the stage for an even more cutting edge VVP project of similar size (67 MW) that involves PHEV and residential heat pumps, along with wind and CHP on the Island of Bornholm – the European Union’s smart grid-renewable energy smart grid showcase. Residents there are already receiving bill credits when the grid operator uses the batteries in plug-in hybrid electric vehicles (PHEVs) as short-term storage to help firm up wind power.

Also known as the “Bright Green City” project, this Bornholm VPP is being developed with DONG Energy with a goal of obtaining 76% of its total electricity from renewables by 2025, with 90 MW of wind power is planned to be added to the existing 30 MW in current operation. An additional 5 MW of distributed solar PV is also on the drawing boards for Bornholm. PHEVs are a key part of this greening of local infrastructure effort, leading some observers to come up with a new acronym: an Electric Vehicle VPP or EV-VPP. In a partnership to be launched in 2012 with the EV battery provider Better Place, DONG Energy hopes to roll out this EV-VPP throughout Europe.

The success record of smart grid renewables integration is a mixed bag, with European countries boldly plowing forward while many utilities in the United States exhibit what a former California state regulator called “electrotrophobia” – the fear of change linked to greater reliance upon intermittent renewable energy resources.

Massive amounts of new transmission lines will be necessary in the U.S. to access the best wind resources, yet the biggest buzz is about advances at the distribution level. The truth of the matter is that the integration of renewables is not a reliability issue, as these resources are integrated around the world at penetration rates 10 to 20 times higher than in the United States, without major catastrophes. It is really all a matter of costs to ratepayers and of reducing the environmental impacts of the current reliance upon natural gas fired generation — along with a massive build-out of new transmission infrastructure — to solve the integration problems. As renewable deployments increase, integration costs are expected to go way up (see Figure 1.1 below) – at least from the perspective of U.S. utilities.

In isolated cases, such as Denmark, real and rapid progress on smart grid renewables integration is already reality. While Europe (especially Germany and Spain) appears to be in the lead, the U.S. and Asia Pacific are also making big strides forward. Instead of integration costs going up with higher solar PV penetrations, smart grid experts in Germany suggest the opposite could occur with the right low-voltage distribution network technology, highlighting the lack of consensus on how increased renewables will impact utilities.

The synergy between smart grid and renewable energy seems intuitive, but where the rubber meets the road, much more validation needs to be done. Technologies have come a long way over the past five years. Today microgrids, demand response, and wind and solar forecasting technologies are all reaching commercial status. As a result, the tools on the grid side to better manage the variability of renewables are now increasingly available. These technologies will begin displacing the current reliance upon gas-fired generation at the transmission level over the next six years. This, in turn, will minimize the environmental impacts of grid integration of solar and wind, reinforcing the value of the smart grid.

On the renewables side, equal if not greater progress has been made with new and improved technology and innovative business models. The fact that state-of-the-art wind turbines and solar PV systems with sophisticated micro-inverters can self-provide many of the ancillary services that utilities and grid operators worry about speaks to how far this industry has come in responding to integration issues. Determining the business case for the integration of these renewables through the smart grid is, by necessity, a matter of speculation. Safe to say Pike Research believes the world will be a very different place six years from now.

The inverter – a technology with the rather unglamorous job of converting Direct Current (DC) produced by most solar and wind generation assets into Alternating Current (AC) for distribution throughout utility grids – is hardly the object of much love. It’s traditionally been viewed as necessary component of most renewable distributed energy generation (RDEG), but nothing more. A decade ago, inverters lacked any communications or larger smart grid optimization capacity. How the world has changed.

I recently presented at the Inverter and PV System Technology Forum USA 2012 event in San Francisco. While much of my own research (and presentation) focused on the ability of new inverters to offer the service of intentional islanding necessary for microgrids, I was astounded to learn the full gamut of other smart grid-type services modern inverters can offer. I already knew about Princeton Power System’s ability to offer demand response, but I didn’t realize that many of the issues that seem to give utilities heartburn in regards to solar photovoltaics (PV) – voltage, frequency and ramping concerns – can now be handled by these inverters and “smart” solar PV systems themselves.

Of course, the functionality of inverters is also dependent upon scale. Today’s inverter market can be divided up into at three primary categories:

Centralized Inverters: A relatively recent phenomenon, these larger scale systems have been propelled by the growth in utility-scale solar PV projects that can now reach 250 MW or even 500 MW in total capacity. Companies such as SMA of Germany, which has deployed 20 GW of total inverter capacity worldwide and boasts a 35% total inverter market share, is big on this technology.

String Inverters: This is the most common configuration, as it can be deployed at a variety of scales and is, generally speaking, the most cost-effective choice. As the name implies, inverters are linked up in a string, either in parallel or along multiple strings.

Micro-inverters: Perhaps the biggest market buzz surrounds these technologies, as they offer the ability to control output, voltage and frequency down to the solar PV panel level. For example, the company Enphase – which deployed over 1 million micro-inverters in 2011 and has captured 34% of California’s residential market – can monitor the performance of all of its deployments every five minutes through a control center located in Petaluma, California.

Ironically enough, many of the variability problems utilities worry about with increased use of renewables can be mitigated by emerging solar and wind power technologies, with the inverter being one key solution. However, right now, utilities will not allow inverters to provide many of these services in the U.S. Markets around the world have yet to mature to create a power quality metric making provision of these services cost-effective for any of the parties involved.

Many of the Germans at the Inverter Forum (and they were in the majority since Germany is the world leader on solar PV) pointed out that the country has experienced no blackouts or major problems even though, on a per-capita basis, there is 10 times as much solar in Germany as in California.

One way Germany is able to address high penetrations of solar PV on feeder lines is that the grid operator can simply curtail solar PV systems below 5 kilowatts (kW) in size. Interestingly enough, the entire European Union is also abolishing the standard utility protocol of requiring inverters to disconnect from the grid during a disturbance, which removes one of the largest stumbling blocks to microgrid implementations, and maximizes the value of these distributed resources. The Europeans now see the light. When will the U.S. get up to speed and allow solar (and wind) technologies – including inverters – to help solve the grid challenges they allegedly create?